The Shareholder Committee of Waltham Forest Council met on Wednesday 13 March 2024 to discuss the future of the council's housing development company, Sixty Bricks. The meeting's agenda focused on a proposal to make Sixty Bricks dormant due to current economic conditions and financial constraints.

Sixty Bricks - Next Steps Proposal

The primary item scheduled for discussion was a proposal concerning the future of Sixty Bricks, the council's wholly-owned development company. Established in 2017, Sixty Bricks was intended to add value to the council's housing delivery models through entrepreneurial activities, including land acquisition and the development of various housing tenures and commercial premises.

The report pack indicated that Sixty Bricks successfully completed its Phase 1 development programme by the end of 2022, which comprised 299 new homes, with 78% designated as affordable housing, including 188 social rent homes. These schemes were noted for their high standard, with the Jazz Yard development receiving award nominations. Phase 1 was funded entirely by the council, with all completed homes now sold or reserved and scheduled for completion by 31 March 2024.

However, the operating environment for Sixty Bricks has significantly changed since Phase 1. The report highlighted increased construction costs, softened sales values, higher debt costs, and constrained council funds. A review commissioned in Autumn 2023 by commercial specialists 31Ten acknowledged the success of Phase 1 but identified a need for Sixty Bricks to diversify its development pipeline to become more self-sustainable and less reliant on council land and funding.

The report detailed that Sixty Bricks presented an updated delivery pipeline in January 2024, which would have required significant council investment. Due to challenging economic conditions and current financial constraints, an assessment concluded that the council was not in a position to provide the necessary investment or funding guarantees. The analysis of Sixty Bricks' proposal indicated that it did not present a viable pipeline under current market and funding conditions, with uncertainties regarding long-term funding and sufficient income to cover operating costs. Discussions with external funders suggested that a parent company guarantee from the council would be required to secure external funding, which the council was not in a position to provide.

The report noted that only the Priory Court scheme was considered deliverable, and Sixty Bricks proposed to manage this project rather than develop it as a commercial company. It was suggested that Priory Court could be delivered in-house, avoiding the need to fund Sixty Bricks' operational costs. Consequently, the business case for retaining a standalone housing company was deemed not to represent value for money, as the costs associated with maintaining the company were significantly higher than those for an in-house project team for Priory Court.

In response to these findings and recommendations from the Waltham Forest Affordable Housing Commission, which advised on maximising affordable housing delivery, the proposal was to make Sixty Bricks dormant. This would retain the option to revive the company in the future should economic and financial conditions improve and the council wish to do so. Future housing delivery was proposed to proceed via self-delivery and developer partnership routes. Making the company dormant was intended to minimise future liabilities, given its successful Phase 1 delivery.

The report outlined three options considered:

• Option 1: Sixty Bricks to continue as a conventional housebuilding company. This would require significant Housing Revenue Account (HRA) investment, which was not currently affordable, and would also necessitate securing GLA grant funding for the Church Lane project, which had not been obtained.
• Option 2: Reset Sixty Bricks to be a more entrepreneurial development company. This would involve downsizing the business, requiring seed funding, and assembling a new pipeline. It was suggested that allocating Priory Court to Sixty Bricks could provide some capitalisation of operating costs.
• Option 3: Make Sixty Bricks dormant. This option was proposed as it would provide flexibility to respond to financial challenges, minimise financial exposure, achieve operational savings, and retain the opportunity to revive the company.

The recommendations included the Shareholder Committee noting the report, with Cabinet to take decisions on making Sixty Bricks dormant, approving a budget of £150,000 for specialist financial and legal advisory services, and delegating final terms for making the company dormant to the Strategic Director of Resources in consultation with the Strategic Director of Place.

The report also addressed implications for finance, value for money, risk, legal considerations, equalities, sustainability, and council infrastructure. It noted that exit costs for making the company dormant would be incurred in the 2024/25 financial year and funded from the budget strategy reserve. An equalities screening exercise indicated no negative or adverse impacts on protected characteristics as a result of the proposal.